Any of you deplorables who work in banking well versed in VC?
Background: Partner and I own the majority of a company. We have two other partners who, combined, own 15% currently. They are brothers and very successful in their other endeavors. A year ago, we brought them on board as investors/partners. We didn't need the money, but one of them owns five auto dealerships and the other is well connected, so we knew by allowing them to invest/become partners, we'd quickly grow our company based on the auto dealerships jumping on board.
In return for their investment (and more for their dealerships becoming big clients), we gave each of them 7.5%. However, if we were to ever hit $XM in revenue, they'd each get 30%, thus us losing our control. We regret that a bit, but we never thought we'd have as much success as fast as we did or think it would grow this much. Our market has grown to include big credit unions/banks/finance firms, and the growth possibility is now much bigger with those lenders jumping on board.
The brothers are pushing for us to do a series A with venture capitalists. Their concern is 1) a huge company will dump a hundred million into a company, copycat our program, and spread quickly across the country beating us to the market. 2) they want to grow as fast as possible and think our revenue can grow to $100M-$150M, at which point, they will want to sell. We'd want to sell far sooner than that. So they think getting a VC to jump on board for even a few million is worthwhile. I don't think it is needed, but I'm a lot more conservative business-wise than they are.
Their argument is that due to our operating agreement, VCs will be turned off due to the uncertainty of who has how many shares. I think we are three years away from hitting the threshold to where their equity jumps up to 30% each. Their offer is to cut their shares to 25% each (meaning they have 50% and we have 50%) if we agree to do a series A. By doing that, they argue that a VC wouldn't have to worry about any change in shares once we hit the revenue threshold. The operating agreement wouldn't be confusing to them, and they'd know exactly how much they'd get regardless of reaching a certain revenue.
I think they just want control (or at least take away our control) immediately instead of waiting a few years to see if we reach that threshold. Does their argument make sense? Would an operating agreement like that turn us off to VCs? A friend in Park City works for a VC, and she is meeting with me along with her CEO - all bright, Ivy grads whom I trust, but they are in real estate investing, so they may think a bit differently.
Background: Partner and I own the majority of a company. We have two other partners who, combined, own 15% currently. They are brothers and very successful in their other endeavors. A year ago, we brought them on board as investors/partners. We didn't need the money, but one of them owns five auto dealerships and the other is well connected, so we knew by allowing them to invest/become partners, we'd quickly grow our company based on the auto dealerships jumping on board.
In return for their investment (and more for their dealerships becoming big clients), we gave each of them 7.5%. However, if we were to ever hit $XM in revenue, they'd each get 30%, thus us losing our control. We regret that a bit, but we never thought we'd have as much success as fast as we did or think it would grow this much. Our market has grown to include big credit unions/banks/finance firms, and the growth possibility is now much bigger with those lenders jumping on board.
The brothers are pushing for us to do a series A with venture capitalists. Their concern is 1) a huge company will dump a hundred million into a company, copycat our program, and spread quickly across the country beating us to the market. 2) they want to grow as fast as possible and think our revenue can grow to $100M-$150M, at which point, they will want to sell. We'd want to sell far sooner than that. So they think getting a VC to jump on board for even a few million is worthwhile. I don't think it is needed, but I'm a lot more conservative business-wise than they are.
Their argument is that due to our operating agreement, VCs will be turned off due to the uncertainty of who has how many shares. I think we are three years away from hitting the threshold to where their equity jumps up to 30% each. Their offer is to cut their shares to 25% each (meaning they have 50% and we have 50%) if we agree to do a series A. By doing that, they argue that a VC wouldn't have to worry about any change in shares once we hit the revenue threshold. The operating agreement wouldn't be confusing to them, and they'd know exactly how much they'd get regardless of reaching a certain revenue.
I think they just want control (or at least take away our control) immediately instead of waiting a few years to see if we reach that threshold. Does their argument make sense? Would an operating agreement like that turn us off to VCs? A friend in Park City works for a VC, and she is meeting with me along with her CEO - all bright, Ivy grads whom I trust, but they are in real estate investing, so they may think a bit differently.
